The Stewardship Code & Shareholder Rights Directive

1. Regulation

COBS 2.2.3R requires a firm which is managing investments for a professional client to disclose clearly on its website the nature of its commitment to the Financial Reporting Council’s UK Stewardship Code 2020 (the “Code”). SRDII requires a firm to describe how it integrates shareholder engagement into its investment strategy. NoS endorses and supports the principles on engagement with the investee companies set out in the Code and SRDII.

2. Application of Principles

3. Purpose, strategy and culture

NoS regards voting as an integral part of being a responsible steward of capital and exercises proxy voting rights independently and solely in the interests of our clients and beneficiaries standpoint and not to promote its own interests. We are committed to ensuring consistent exercise of voting rights and voting on all shares held, where it is in the best interest of our clients. Through implementation of our voting policy & guidelines, we aim to enhance the long-term value of our shareholdings and to foster corporate governance best practices. We apply our voting principles with full consideration to a company’s circumstances, following investigation of any concerns and in line with our investment philosophy and voting guidelines.

4. Governance, resources and incentives

It is our preference to support and build long term relationships with the companies in which we invest. We therefore evaluate the actions and strategies of companies constructively. Where we may have concerns over the value of investee companies, we will take steps to protect the value of our clients’ investments. This is undertaken through participation in shareholder meetings, private management meetings and formal written communications. Our portfolio managers hold the ultimate sanction against management action by selling their investment. This will only be necessary if deemed to be in the best interests of our clients. The above mentioned interactions between NoS and the investee companies is governed by NoS’s Research Policy. The separation of execution and supervisory functions in management is encouraged as a necessary function of superior corporate governance. A company’s board of directors must be appropriately sized and composed so as to ensure adequate discussions take place and appropriate decisions are made. Main corporate governance principles that we expect from our investee companies:

• Acting in the long-term interest of shareholders;
• Protecting shareholder rights;
• Maintaining high integrity in corporate behaviour at all times;
• Ensuring an independent and efficient board structure;
• Aligning corporate incentive structures and remuneration with long-term interests of shareholders;
• Disclosing accurate, timely and transparent financial and corporate governance information; and,
• Ensuring strong environmental and social performance and disclosures. The Proxy Voting Guidelines, maintained by NoS, set out the corporate governance matters which are considered when asked to vote. In addition to the above, some criteria include, but are not limited to, the independence, competence and diversity of the board of directors, the board’s size, code of conduct, risk management and their communication with shareholders, the conditions around remuneration and the investee companies’ audit functions.

5. Conflict of interest

NoS acknowledges that conflicts of interest may arise in relation to stewardship activities, and in such cases the interests of our clients must come first. NoS has established a comprehensive Conflicts of Interest Policy, and the firm maintains a Code of Ethics Policy, in order to mitigate and manage conflicts or potential conflicts. We will assess voting on a case-by-case basis and may vote on or deviate from a policy with due consideration to the best interest of our clients. Where a decision has been made to deviate from a policy, this will be documented to evidence that NoS has acted in the best interest of our clients.

6. Promoting well-functioning markets

Our portfolio managers will consider the company’s management strategy, financial standing and market environment when voting on resolutions relating to the issuing of capital.

7. Review and assurance

NoS does not use standing instructions for voting; all voting decisions are made by the portfolio managers on an individual basis and votes cast via a third party vendor, Institutional Shareholders Services (ISS). ISS provides research for all proxy votes but the final decision rests with the Global Emerging Markets Team. This enables NoS to control its voting policy and final vote decisions, whilst outsourcing the processing of the proxy voting process. NoS’s voting rights to date classify as insignificant voting rights, per Recital 18 of SRDII, due to the holding size compared to the investee companies’ share capital, therefore no standalone reporting is conducted. We review the Stewardship Code and Engagement Policy at least annually. We maintain a record on all voting activity and explanations as to the reasons for voting against management. A summary of our proxy voting activity, including disclosure where we have voted against management, can be provided upon request.

8. Client and beneficiary needs

Our portfolio managers make investment decisions based upon the characteristics of an investee company by analysing financial information, such as earnings trends and capital structures, as well as non-financial information like management strategies, corporate governance, social responsibilities and risk. Such data is acquired by accessing publicly disclosed material, holding regular meetings with management and appropriately engaging with investee companies. As a regulated firm, we recognise that there may be circumstances where it may be appropriate to receive inside information (i.e. non-public, price sensitive information) on companies in which we invest in. Our default position is that we generally do not wish to be made party to inside information unless permission is sought from us first. Procedures and controls are maintained to manage those circumstances where we do decide to receive inside information. NoS is opposed to resolutions aimed at maintaining company control or that prevent corporate takeover. Acquisition proposals and/or defensive strategies may be assessed to the extent that the existence of such acquisition risks are clear and existing shareholder value would not be damaged. As stewards of our clients’ capital, our portfolio managers will assess corporate transactions such as mergers & acquisitions of businesses from the view point of consistency with its management strategy and medium to long term enhancement of shareholder value.

9. Stewardship, investment and ESG integration

Our portfolio managers will consider the company’s management strategy, financial standing and market environment when voting on resolutions relating to the issuing of capital. In particular, we do not evaluate capital increases positively if there is a possibility that it will significantly dilute the equity of existing shareholders and place them in an overall disadvantageous position. Votes are cast on all shares, where there are no legal, client or technical constraints. Where our proxy voting principles or other general corporate governance best practice principles are not met, we would vote against a resolution and attempt to further engage with the investee company. Specifically on climate change our analysis will consider the physical, liability and transition risks associated with the changing climate and our engagement will encourage effective financial disclosure where appropriate.

10. Monitoring managers and service providers

NoS utilises ISS for the provision of proxy voting services. ISS’ proxy voting solutions enable us to control our voting policy and final vote decisions while outsourcing the processing of the proxy process to a reliable partner. ISS receive our proxy ballots, work with our custodian banks, execute votes on our behalf, maintain vote records and provide us with comprehensive reports to deliver a complete, end-to-end solution. In the event we wish to vote against the recommendations made by ISS, we are able to access the ISS voting system and amend the vote accordingly.

11. Engagement

Where we may have concerns over the value of investee companies, we will take steps to protect the value of our clients’ investments. This is undertaken through participation in stakeholder meetings, private management meetings and formal written communications.

12. Collaboration

NoS’s usual policy is to actively engage in discussions with an investee company and participate in collaborative engagement. However, subject to our conflicts of interest and code of ethics policies, we would consider engaging with other stakeholders on matters of mutual interest.

13. Escalation

Our voting rights to date classify as insignificant voting rights due to the holding size compared to the investee companies’ share capital, therefore no escalation has been undertaken by the firm that resulted in actions taken by the investee companies.

14. Exercising rights and responsibilities

As set out above, we utilise ISS to conduct our proxy voting. This provider can be utilised to produce disclosures on the proportion of share that we voted on, proportion of votes withheld and the underlying voting decisions. Client specific records are available to clients on request.

Shareholder Rights Directive

Under obligations arising from the revised Shareholder Rights Directive (EU 2017/828) (“SRD II”), a firm which trades shares on regulated and comparable markets, is required to either develop and publicly disclose an engagement policy as prescribed in COBS 2.2B.6R or disclose a clear and reasoned explanation of why it has chosen not to do so.

The objective of SRD II is to encourage long-term shareholder engagement with investee companies regarding performance on strategy, governance, environmental and social issues. This also aligns with our investment philosophy under our Environmental, Social and Governance Policy (ESG) and our undertaking to adopt as best practice the UK Stewardship Code 2020.

North of South fully endorse the objectives of SRD II and have decided that whilst they primarily operate within the Global Emerging Markets, there are occasions when some trades may be dual listed on the UK and EU regulated markets and for this reason the firm has decided it is in the best interests of its clients to provide an engagement policy on our website.

Risk Management

North of South is an asset manager and does not risk its own capital in the financial markets. North of South does not have regulatory permission to take proprietary trading risk and does not take such risk. Accordingly, the risks that North of South faces are more limited in scope than for other types of regulated firms. The risks and controls detailed below are, in accordance with the BIPRU rules, risks that North of South faces in respect of its own activities. The risk management processes and controls for monies managed by North of South are not part of these disclosures.

Capital

The capital of North of South is in the form of eligible members’
capital plus retained earnings. All of the capital of the company is Tier 1
capital. As of May 2024 North of South had Tier 1 capital of £800,000.

Approach to risk

North of South has identified and performed an assessment of the key risks that may impact its business. North of South is an investment manager and does not undertake proprietary trading. The material risks to North of South largely fall within the “Business Risk” and “Operational Risk” categories.

Principal risks and uncertainties

Market risk

For the purposes of these disclosures, market risk is the risk value of, or income arising from, North of South ‘s assets and liabilities varying as a result of changes in the market price of financial assets, changes in exchange rates or changes in interest rates.
North of South does not take proprietary trading risk. North of South ‘s risk management activities are on behalf of clients and North of South ‘s own money is not at risk. The only market risks that North of South potentially face is currency risk due to the mismatch of the currencies in which income is earned and the currencies in which costs are incurred. Currently this risk does not exist.

Credit risk

Credit risk refers to the potential risk that North of South ’s bankers or customers fail to meet their obligations as they fall due.
North of South has appropriate policies to monitor this exposure on an ongoing basis.

Liquidity risk

North of South ‘s liquidity policy is to maintain sufficient liquid resources to cover cash flow imbalances and fluctuations in fees received/receivable. North of South maintains cash balances at its bankers to cover liquidity risk.

Operational risk

Operational risk is the risk of loss arising from failed or inadequate internal processes or systems, human error or other factors. The risk is managed by the members who have responsibility for putting in place appropriate controls for the business. North of South documents the risks that it is exposed to and the compensating controls in its ICAAP.

Business risk

Business risk is the risk that North of South may not be able to carry out its business plan and could therefore suffer losses if its income falls. This is a risk that all businesses face. The members continuously monitor income and expenditure levels and adjust their plans accordingly.

Concentration risk

Concentration risk is the risk that North of South is overly dependent upon any one customer or any one group of connected customers either in terms of income dependency or in terms of credit risk. North of South has a diversified income source and is not subject to concentration risk.

Pension obligation risk

North of South has no defined benefit schemes and thus has no pension obligation risk.

Interest rate risk

North of South is not exposed to interest rate risk.

Residual risk

Residual risk is any risk not covered by the specific risk categories outlined above.
The members do not consider that there are any residual risks that require the Company to maintain any additional capital.

Remuneration disclosures

Under the Remuneration Code (the “Remuneration Code”), North of South, as is standard for an investment management firm, is classified as a Proportionality Level three firm. Proportionality Level three firms are permitted to disapply many of the technical requirements of the Remuneration Code and proportionately apply the Remuneration Code’s rules and principles in establishing North of South ’s policy.
As at 31 December 2019 North of South had 3 code Staff. North of South has only one business area which is its investment management business.

The Decision-Making Process

North of South has concluded that, on the basis of its size, the nature, scale and complexity of its legal structure and business and the nature of the risks that it takes on behalf of clients, it does not need to appoint a remuneration committee. North of South believes that its Remuneration Policy appropriately addresses potential conflicts of interest and that North of South ’s authorised persons are not rewarded for taking inappropriate levels of risk. The policy is reviewed at least annually and will be amended, as and when required due to changes in regulation as well as North of South ’s own decision making process.

The link between pay and performance

As the only code staff are members of the LLP this is not applicable.

Quantitative Remuneration Data

North of South has concluded that it is not required to publish quantitative remuneration data relating to code staff on the grounds of proportionality, there only being 3 code staff.

Should you require further information in respect of the disclosure please address all enquiries to:

The Compliance Officer

North of South Capital LLP

7 Chesham Mews

London SW1X 8HS

United Kingdom

T: +44 20 7152 6060